Energy Efficiency Rate Has to Double to Meet Climate Targets

The annual improvement in energy efficiency has slowed down from 1.6% in the period 2000-2008 to 1.3% in 2009-2015, according to a comprehensive new report published by the World Energy Council and the French public agency ADEME. To meet the Paris climate targets, the rate should double to 2.5% per year to 2030, says François Moisan, Scientific Director of ADEME. According to Moisan, price signals are key to achieving this goal, although supporting policies are also required. He believes the global spread of smart meters represent the biggest single opportunity to step up energy saving.

Since 1992, the World Energy Council together with ADEME, a French public agency in charge of implementing policies in the field of energy efficiency and renewable energy, has produced a series of detailed triennial reports (Energy Efficiency: Trends and Policies at World Level) on the different approaches to energy efficiency policies adopted in more than 95 countries.

Dr François Moisan, Executive Director of Strategy, Research and International Affairs, and Scientific Director of ADEME, who has been involved in the research since the project’s inception, has seen attention for energy efficiency move up and down over the years. “In the 1990s, energy efficiency was not on the top agenda of priorities. Energy prices dropped at the end of the 1980s, Europe was undergoing deregulation in the energy sector, and climate change was not yet a leading issue.”

“The present price of fossil fuels on the international markets is not incentivizing energy efficiency”

This notwithstanding, partly as a legacy of the oil crises of the 1970s, some, mainly OECD, countries implemented structural energy efficiency policies at the beginning of the 1980s. This included setting up agencies dedicated to energy efficiency, introducing standards for building construction, and labels and minimum efficiency performance standards for appliances. Emerging economies followed this lead: the report series cites successful practices in China, Tunisia, India, Ghana, and Brazil, among others.

“At the end of 1990s the climate change issue came to the fore, and in the first decade of the 21st century, the increase of energy prices on international markets made energy efficiency a higher priority. We saw more and more governments designing energy efficiency programs and measures. For industry it’s also a strong motivation for competitiveness and greenhouse gases reduction,” says Moisan.

Large differences

The report notes that energy consumption per unit of GDP (primary energy intensity) has been decreasing in 80% of the surveyed countries, partly due to higher energy prices, but also to policies on energy efficiency, and economic factors such as a growing share of services in GDP in many countries.

The energy efficiency improvements over the last 15 years saved the world 3.1 Gtoe of energy and 7 Gt of CO2, which corresponds to 23% of global energy consumption and 21% of global CO2 emissions in 2015:

There are large differences between the regions and countries, however, both in terms of industrial and household energy use. Europe has the lowest primary energy intensity per unit GDP at Purchasing Power Parity (PPP), followed closely by Latin America and OECD Asia, while China uses twice the amount of energy per unit GDP compared to Europe:

There are also significant differences within regions:

What is more, in recent years the annual improvement rate of energy efficiency has slowed down from 1.6% between 2000 and 2008 to 1.3% in the following years, according to the report. Moisan does note that “it seems that in 2015, due to the economic recovery, the slight energy price increase and the public policies, the pace of energy intensity improvement accelerated again.”

Experts estimate that around half of the required greenhouse gas (GHG) reductions necessary to deliver a 2 degree pathway under the Paris Agreement must come from energy efficiency. According to Moisan, this means that “The rate of energy efficiency improvement at world level should double from the present situation, to around 2.5 %/year to 2030.”

Reduce public spending

So what needs to be done?

First of all, the report recommends “a price signal on energy taking into account medium and long term issues” – in other words, carbon pricing is required. “The present price of fossil fuels on the international markets is not incentivizing energy efficiency,” notes Moisan.

At the recent COP22 UN climate conference in Marrakech, many business groups were advocating for global carbon pricing. However, according to Moisan, “even if some economists say that this will only work if there is global agreement on a carbon price, it could be set up at national or regional level first since this will take some time to negotiate at the international level.”

Secondly, the report recommends that “innovative financing tools need to be widely introduced to reduce public spending on financial and fiscal incentives” for energy efficiency.

Already, “Innovative financing tools have been developed in many countries”, notes Moisan. “Third party financing involving longer term investors has been implemented, and guarantee funds are also implemented in some situations. Public procurement aiming at decreasing the cost of equipment through large market creation, which has been implemented in India, is also an efficient tool. The involvement of financial institutions is crucial, as has been demonstrated for example by the success of the publicly funded KfW Development Bank in Germany.”

China is the leader of the smart metering market with 250 million units. In Asia plans are underway to reach 70% coverage, and 40% of American households have a smart meter

In addition, for the past two years, the G20 Energy Efficiency Finance Task Group (EEFTG) has been working to upscale energy efficiency investment. In 2015, EEFTG launched a voluntary set of Energy Efficiency Investment Principles for G20 countries which provide the outline for an “investment grade” policy framework to enhance capital flows to energy efficiency investments.

The subsequent adoption of the G20 Energy Efficiency Leading Programme (EELP) has further strengthened the engagement of the global financial sector. In 2016, 117 banks from 42 countries – including five of the leading banks in China – endorsed an energy efficiency commitment in the framework of the EEFTG, and managers of $4 trillion of assets under management have signed the G20 Energy Efficiency Investor Statement to embed energy efficiency in their practices.

Mix of measures

Thirdly, supporting policies are necessary, notes the report. “The most efficient policies implemented are a mix of different measures”, notes Moisan. “Market instruments are essential (such as price setting in order to reflect the right cost of energy and its externalities) but information and regulation measures are also needed where prices are not sufficient to drive behaviours. Building codes standards, labels and minimum efficiency standards on equipment proved to be very efficient measures since they are reinforced and regularly updated. However, the right policy mix is country and sector dependent.”

Moisan observes that the introduction of smart meters, improving consumers’ ability to monitor and control their electricity and gas use, is the biggest change in the energy efficiency landscape since the last edition of the report three years ago. During this time, smart meters began to be deployed worldwide.

According to the report, China is the leader of the smart metering market with 250 million units. In Asia plans are underway to reach 70% coverage, and 40% of American households have a smart meter. At European level, Italy and Sweden are the leading examples (close to 90% of consumers have smart meters). Furthermore, the Energy Efficiency Directive requires EU member states to deploy smart meters by 2020.

The report recommends that “consumers need to be better informed” and regards it as necessary to simplify messages on energy efficiency to reach the majority of consumers. Linked to this recommendation, the report notes that “smart meters must be used in conjunction with in-home (or on-line) displays or web applications and well-designed programs that inform, engage and motivate people (feedback meters).”

It is at this juncture of digital infrastructure and consumer engagement that Moisan sees the most potential for a step-change in energy efficiency gains. “More and more countries are deploying innovative smart meters, accompanied by an increasingly sophisticated digital infrastructure,” he says. “I believe that the rise of the ‘prosumer’, combined with placing the consumer at the centre of the energy system will drive major improvements in energy efficiency.”

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